If you’re using a builder to construct a new home, you’ll need to sign a construction contract with your builder before work begins. This contract is a legal document that spells out the things both you and the builder need to do as part of the project, as well as the consequences for failing to complete any of those steps.

A strong building contract will help protect both parties in the event a dispute arises while your home is being built. Though it may be tempting to sign your contract right away, it’s important to review this document thoroughly so that you can address any questions or concerns.

What to Look for in a Building Construction Contract

Before signing an agreement with a builder, you will want a comprehensive contract. Things to look for in a building contract include:

• Payment method: How and when does the builder expect to be paid? You will want a clear payment schedule. Paying in installments gives you leverage as the homeowner and prevents the builder from disappearing before the job is complete.
• Price: How is the builder’s fee calculated? You’re likely better off with a contract that features a fixed price, rather than one based on time and materials. You’ll also want to watch out for escalation clauses, which attempt to pass on unexpected jumps in the cost of materials to you, the homeowner.
• Timeframe: What is the projected completion date for the project? Signing a contract that doesn’t include a clear target date for completing your home is a recipe for disaster. You’ll also want to be sure that both you and the builder agree on what “finished” means in terms of your home.
• Waiver of subcontractor liens: This specifies that you are not responsible if the general contractor fails to pay subcontractors.
• Work to be completed: This specifies exactly what the builder is expected to do.

How to Protect Yourself

Having a good contract is the best way to protect yourself from home-building frustration. Signing a contract for building without a specified completion date, for example, is a recipe for trouble. A good contract should also contain a warranty of at least a year on all work and materials. In some states, a longer warranty may be required.

Other ways to protect yourself include making sure that the contract includes language about the builder’s insurance coverage, as well as details about how disputes will be handled (for example, through arbitration rather than court). If you are working with a builder who is reluctant to sign a contract, or who pressures you to sign a contract without giving you time to review it thoroughly, it’s best to walk away.

In addition, if you’re presented with a contract that includes terms or language you don’t understand, or clauses that seem questionable, you may want to have the contract reviewed by a lawyer. Though this can take a bit of extra time and money, it may be worth it in the long run.